Q51 Dr Pugh: Could you give us a note as to who supplies the managed services to the current schools so far built either under the PFI or under the whole programme?
Mr Byles: Yes.6
Q52 Mr Bacon: I should say for the record Mr Byles and I have had occasion to have dealings with each other when he was chief executive of Norfolk County Council. Mr Byles, you said earlier in answer to a previous question that the rate of delivery was going to accelerate quite markedly. You gave a figure of 300 schools that would be under way by this time next year.
Mr Byles: In 18 months.
Q53 Mr Bacon: In paragraph 2.17 on page 24, it refers to the extra money that would be needed to meet increased costs and make sure that the programme stays on track. It includes an increased average annual capital allocation to building schools for the future from £2.5 billion in the 08/11 spending review period to between £3.4 and £3.7 billion for the next spending review period onwards. The 300 you are talking about are all within the existing envelope of what is proposed?
Mr Byles: Yes. There is a carry over of course of some expenditure into the next spending review.
Q54 Mr Bacon: Mr Bell mentioned that some of the increase in costs was due to increased scope and some was due to increased building costs inflation. This Report was published in February but much of the impact of the recent turbulence in financial markets has been a lot more recent than this Report which took 12 months or so to write. We have seen building cost deflation recently. What impact is that going to have on your expected budget plans?
Mr Byles: It may reduce the estimates here. We have just entered a second quarter where inflation has moved below building costs inflation. At the beginning of last year there were some very significant inflationary pressures on steel prices which were causing a sharp push on building cost inflation. In the light of this programme, building cost inflation has been running significantly higher than-
Q55 Mr Bacon: Steel prices have come down.
Mr Byles: Yes. Labour market prices have also come down. Were we to redo the forecasts now, you would get a much lower figure against the inflation cost number but the scope increase would remain.
Q56 Mr Bacon: Are we expecting those numbers in there to go down rather than up in paragraph 2.17?
Mr Byles: Yes.
Q57 Mr Bacon: I share the concern that other Members have expressed about the costs of your organisation. The average cost per employee, according to appendix two on page 62, is £85,000, which is a high salary when that is the average; and yet you still employed £750,000 of consultancy in the most recent financial year. I see it has gone down from four or five years ago or three or four years ago when it was 2.8, but it was still a million in 05/06, a million in 06/07 and three quarters of a million last year. I take your point for the purposes of the argument that you are paying for skills and they have a market price, but you have these skills. You are paying an average salary of £85,000 for these 115 people. Presumably some are on considerably more than that, are they?7
Mr Byles: Yes. Some are on more than that.
Q58 Mr Bacon: In light of this bespoke, separate organisation and in light of these pretty high salaries, why do you still need to spend three quarters of a million pounds on consultants?
Mr Byles: Sometimes it is to do with specialist technical input and we do not employ people with those skills. It is to do with specialist legal input.
Q59 Mr Bacon: It is the lawyers.
Mr Byles: Indeed. These transactions are complex. They are about establishing a standard form of documentation and managing that through a commercial transaction. We do have to engage specialist legal advice in order to help local authorities.
Q60 Mr Bacon: Why do you not employ more framework contractors at an earlier stage?
Mr Byles: For delivery or advice?
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6 Ev 15
7 Ev 11